Changes in the Power Sector Are an Opportunity, Not a Threat

The Department of Energy’s study on grid reliability and resilience offers an incomplete picture of our grid’s transformation

On August 23, the U.S. Department of Energy released the findings and recommendations of its highly anticipated study on grid resilience and reliability. Secretary Perry commissioned the study in April, in a memo leading with the thoroughly debunked proposition that “baseload power is necessary to a well-functioning electric grid.”

The study makes recommendations to address threats to these “baseload” (i.e., coal and nuclear) power plants, but fails to emphasize the broader opportunities that these so-called “threats” unlock. In focusing on threats to baseload power, the study omits the other half of the story: namely, that the United States has an unprecedented opportunity to rethink the grid and to transition investment toward distributed and renewable energy technologies that offer the same (and often better) reliability and resilience as conventional power plants, at lower cost, and without carbon emissions.

What the Study Gets Right

The DOE study identifies several important points that are critical to address as we navigate the future of the grid:

Market forces are driving baseload retirements. The DOE authors note that market forces, in particular the current low price of natural gas, are largely to blame for the economic threat to baseload power plants. This is consistent with the conclusions of a respected industry analysis, which has discredited the notion that renewable subsidies are to blame for the challenges to coal and nuclear plants.

Indeed, the DOE study finds that market trends, including the falling cost and resulting high uptake of wind and solar generation, “have placed a premium on flexible output rather than the steady output of traditional baseload power plants.” In other words, flexibility is the new coin of the realm, and markets are rewarding it at the expense of old, inflexible baseload generators.

Market design can be improved. U.S. electricity markets were designed for an era when large, central power plants competed only with each other. Now that renewable energy, and particularly wind and solar power, is emerging as the least-cost resource, many observers agree that there is a pressing need to reexamine how we define products and compensate market players to ensure that our market rules reflect this paradigm shift in the costs and capabilities of nontraditional resources.

Without these improvements, the study recognizes that current market structures combined with low natural gas prices are leading to an increased reliance on natural-gas-fired generators, which are at risk of supply constraints that “can create increased price risk and, in extreme cases, could impact reliability.”

An emphasis on resilience. The study notes that although U.S. energy markets are effective in providing for system reliability—the ability to deliver power consistently—they do not serve as well to promote the resilience of our grid—the ability to recover from a disturbance. The study suggests that work remains to “ensure that wholesale electricity markets are designed to recognize and incentivize investments that would achieve or enhance resilience-related objectives.” We need to rethink how we define and compensate resources for these services, including on the demand side.

What the Study Leaves Out

The study identifies important challenges, but fails to fully reflect the possibility, and indeed the current reality, that renewable energy and distributed energy resources are increasingly a better choice to address these challenges than conventional power plants.

Distributed energy resources can improve affordability, reliability, and resilience. The study suggests that states that retire baseload generators are “accepting increased risks that could affect the future affordability, reliability, and resilience of electricity delivery.” On the contrary, a growing body of evidence suggests that states and countries that replace old, costly fossil-fired generators with renewables, efficiency, demand response, and other distributed energy resources (DERs) have found that the opposite is true: that these resources can provide the same or better services at lower costs. Although the study recognizes the role that these resources are able to play, it emphasizes instead the continued role of large generators and makes recommendations that could be used to justify support for coal and nuclear plants.

“Fuel assurance” is not a proxy for resilience. The DOE study suggests that “fuel assurance”—i.e., the presence of a local stockpile of fuel on-site at a generator—should be valued. In fact, “fuel assurance” is by no means assured for fossil-fuel-fired power plants, which face many risks beyond on-site fuel availability that can and do affect their ability to provide power to the grid. Although the study recognizes that fuel assurance is “the resource portfolio’s ability to access sufficient fuel to meet system needs,” it does not highlight that portfolios based on renewable and distributed resources, which burn no fuel, can contribute even more to these needs, without the risks associated with fuel supply disruptions.

Grid infrastructure can be distributed. The study recommends that federal and state agencies accelerate “licensing, relicensing, and permitting of grid infrastructure such as nuclear, hydro, coal, and advanced generation technologies.” This reflects a 20th-century view of the definition of “grid infrastructure.” Today, the most reliable, resilient, and cost-effective “infrastructure” investment opportunities can be found behind the meter, in brownfield suburban lots, in Americans’ basements, or sprouting from the Great Plains. Reinforcing a dated definition of “infrastructure” leaves out the opportunities offered by these resources.

Missing the Opportunity at Hand

The DOE’s detailed study identifies the right issues to address and accurately characterizes many of the challenges facing our grid. However, in its emphasis on 20th-century technology as the solution to these challenges, it misses out on the opportunity to reap the benefits of 21st-century innovation and drive the U.S. grid toward a least-cost, reliable, and resilient future. The study recommends that the U.S. seek “energy dominance”—but it suggests that we look backward to find it. To truly dominate in the new energy economy, we should gracefully retire the aging baseload assets whose time has come, embrace the opportunities offered by new technologies and continued innovation, and secure the United States’ position as a leader, not a laggard, in the global energy transition.